When talking about the future of rates there are many factors to consider among them are the local economy, world economy, Bond Markets, World Markets, and current political climate. But predicting the future of rates is like predicting where a helium balloon will end up if you let it go. You got a general idea based on the direction the wind is blowing but that can quickly change.

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Rates on the rise, but are they here to stay?

06 April 2011

When talking about the future of rates there are many factors to consider among them are the local economy, world economy, Bond Markets, World Markets, and current political climate. But predicting the future of rates is like predicting where a helium balloon will end up if you let it go. You got a general idea based on the direction the wind is blowing but that can quickly change. April 5th saw a relatively large increase of the 5yr fixed rates by 0.35% with many major lenders, as of today other lenders have followed suit. The overnight lending rate for the variable mortgage terms remained the same. The question on everybody’s mind is ‘will the rates come back down or continue to rise?’ That brings us to our balloon example, the experts have a good idea but they are not completely sure themselves.

Even with the uncertainty built into rate forecasts it still bears paying attention to what the experts say our future rates will look like, after all they are trained in their field, have access to information that the average consumer may never see and they get paid well to know their job and advise their employers so future financial strategies can be implemented.

Below you will find the latest year end summaries by each of the major Canadian Banks.

(The Bank of Canada's overnight rate helps set the lenders variable mortgage rates.)

Bank

2011

2012

BMO

2.00

3.50

CIBC

2.00

2.25

NBC

2.00

2.75

RBC

2.00

3.00

Scotia

1.50

2.25

TD

2.00

3.00

Year-end Avg

2.00

2.75

Chg vs Today

+1.00

+1.75

(All figures are rounded to the nearest .25 point increment.)

Latest 5-Year Government Bond Yield Forecast

(Government bond yields drive 5-year fixed mortgage rates.)

Bank

2011

2012

BMO

3.58

4.15

NBC

3.46

3.88

RBC

3.30

4.05

Scotia

2.75

3.00

TD

3.50

3.80

Year-end Avg

3.32

3.78

Chg vs Today

+0.53

+0.99

There are a few things to take into account for the short term. Canada’s economy expanded 0.5% in January, we also saw a strong start to our GDP numbers which grew matching that of Decembers. The Conference Board of Canada projected an overall economic growth of 2.4% this year indicating further that the rebound appears on solid ground. Normally these and other factors would indicate a certain and early interest rate hike by the Bank of Canada, but Governor Mark Carney is not expected to even signal a hike in his benchmark rate when the central bank next meets given the optics of doing so during an election campaign.

Still, the overnight rate will inevitably rise later this year from its current level of 1 per cent, possibly in July. TD senior economist Pascal Gauthier sums up the common sentiment amongst the experts on the future of rates; "We remain of the view that July is the most opportune time for the next hike…Once engaged, the hiking cycle will likely persist at a gradual pace of a quarter-point at each meeting for the remainder of the year, bringing it to 2 per cent by year-end. Looking out further, unless a sizable downside risk materializes between now and then, the overnight rate will likely reach 3 per cent by year-end 2012."

Where will the balloon actually land?….Somewhere over there ;)

Please see the attached links to the source information for the above article.